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A closer look at potential emerging market currency intervention …

The FT Alphaville has a breakdown of a plan India hopes to spearhead that would mean coordinated selling of US dollar reserves to lift emerging market currencies.

India is liaising with other emerging-economy countries on a plan to co-ordinate intervention in offshore currency markets blamed for worsening a currency rout over the past three months, a senior Indian finance ministry official said on Friday.

The market has largely ignored this story but I think they’re underestimating the potential consequences. If they dump dollars (and perhaps gold reserves) it could lead to a broader rally in non-reserve currencies like CAD and AUD. Oil might also be a big winner but it all depends on the details.

The Indian finance ministry’s principal economic adviser said the move was a “matter of days, not weeks” so it adds another element of intrigue to next week’s trading. FX intervention expert Jim Trott has his thoughts here.

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